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Sunday 22

July, 2018 3:07 PM



Annual credit card debt jumps

Annual credit card debt jumps

The average credit card balance rose by $56.40 to $3,251.30 in May...

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12.07.2018 03:58 PM

Biggest annual increase in credit card debt in 7½ years
Credit & debit cards; Domestic airfares

Credit cards: The average credit card balance rose by $56.40 to $3,251.30 in May, up by 4.1 per cent over the year – the strongest annual growth rate in 7½ years. In smoothed terms (12 month average) the average balance was up by 0.9 per cent – the equal strongest annual growth rate in 6 years.

Discount airfares rise: Discount fares fell by 9.9 per cent in July after rising by 13.7 per cent in June. Discount fares are up by 7.4 per cent over the year. In smoothed terms, discount fares increased by 9.5 per cent on a year ago – the strongest annual growth rate in 14 months.

What does it all mean?

Aussie credit card balances are on the rise. The average credit card balance now stands at $3,251.30, the highest level since December 2014. And the annual growth rate in credit card debt is the highest in nearly 8 years at 4.1 per cent.

Household consumption is a key “uncertainty” according to the Reserve Bank. And slow growth in wages is said to be weighing on household finances. Yet it hasn’t stopped a credit card splurge in May. Aussies are spending, benefiting from cheaper goods and services. And shoppers may be emboldened by better job security following solid jobs growth over the past 18 months.

Last week the corporate regulator, the Australian Securities and Investments Commission (ASIC), said that 18.5 per of Aussie consumers were in credit card debt stress. And one in six shoppers were ensnared in a credit card debt trap. ASIC has flagged a tightening in credit card rules, proposing that banks set lending limits for borrower repayments within three years, shielding consumers from unsustainable debt levels, while providing them with access to credit.

The weaker Aussie dollar may discourage travellers from heading overseas, but domestic airfares are on the rise. According to data compiled by the International Air Transport Association (IATA), airlines are confronted with increases of around 27 per cent for jet fuel costs in 2018, compared with 2017.

Aussie domestic discount airfares have risen by almost 10 per cent over the year to May – the strongest annual growth rate in 14 months. And business airfares are on the rise too.

What do the figures show?
Credit & debit card lending:

The average credit card balance rose by $56.40 to $3,251.30 in May, up by 4.1 per cent over the year – the strongest annual growth rate in 7½ years. In smoothed terms (12 month average) the average balance was up by 0.9 per cent – the equal strongest annual growth rate in 6 years.

Of credit cards attracting interest charges, the average outstanding balance rose by $62.60 in May to 2½-year highs of $2,058.30. The average balance accruing interest was up by 5.2 per cent on a year ago – the strongest annual growth rate in 7½ years. In smoothed terms (12 month average) the average balance was down by 0.3 per cent on a year ago.

The average credit card limit fell by $8.10 to $9,457.80 in May to be up 4.5 per cent over the year.

Usage of credit card limits stood at 34.4 per cent in May.

The number of credit card accounts stood at 16.084 million in May, down by 4.0 per cent over the year.

The number of debit card accounts stood at 36.405 million in May, down by 20.1 per cent over the year.

The number of ATM transactions in May were up 0.9 per cent over the year – the strongest annual growth rate in 6 years. Transactions had been consistently falling in annual terms for over five years.

The number of debit card purchases in May were 13.5 per cent higher than a year ago with the value up 9.4 per cent.

In May 15.0 transactions per account were made on credit cards (on average) with 14.6 transactions per account made on debit cards.

Airfares

The Bureau of Infrastructure, Transport and Regional Economics (BITRE) reports that business class airfares rose by 0.1 per cent in July after increasing by 0.3 per cent in June. Business class airfares stand 0.9 per cent higher than a year ago. But in smoothed terms (13 month moving average), business class airfares are up 1.3 per cent on the year – the equal strongest annual growth rate in 11 months.

Restricted economy airfares fell by 0.1 per cent in July after rising by 1.9 per cent in June. Restricted economy airfares are up 23.2 per cent on a year ago. In smoothed terms restricted economy fares were up by 24.0 per cent on a year ago – the weakest annual growth rate in seven months.

Discount fares fell by 9.9 per cent in July after rising by 13.7 per cent in June. Discount fares are up by 7.4 per cent over the year. In smoothed terms, discount fares increased by 9.5 per cent on a year ago – the strongest annual growth rate in 14 months.

What is the importance of the economic data?

The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.

The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases regular aviation data. The BITRE releases the Australian Domestic Airline Activity publication monthly and the Domestic Air Fares publication. The data provides insights on airline activity as well as trends in the broader Australian economy. If more people are flying, then it suggests businesses are more active and consumers are more confident.

What are the implications for interest rates and investors?

Credit card debt continues to grow, but it appears manageable for most with the majority of cardholders paying down debt regularly – avoiding interest charges. Personal credit growth data has been weak, reflecting consumer caution. Plastic is primarily being used for transactional purposes rather than for borrowing.

CommSec expects official interest rates to be stable until early 2019.

Published by Ryan Felsman, Senior Economist, CommSec
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